Having Workers’ Compensation Insurance as part of your risk management strategy is essential for any business. Still, one often overlooked detail in this process is audits – an area that can leave employers confused and unsure of what to do next.
An audit entails thoroughly examining a company’s records to assess the accuracy and completeness of the information provided by employers regarding workers’ compensation benefits. It ensures the precision and integrity of the data about obtaining such benefits.
Nowadays, every aspect, from hiring practices to accident determinations, needs to undergo thorough scrutiny through audits. However, this meticulous examination can often result in unforeseen levels of stress.
Fortunately, there are experts you can turn to if navigating your policy’s auditing is taking away from day-to-day operations and activities. So, how does a workers comp insurance audit work? Let’s delve into this critical topic.
What is a Workers’ Comp Audit?
A workers’ comp audit is an end-of-year process to ensure your business pays the right amount for workers’ compensation insurance. This process typically involves thoroughly examining a policyholder’s financial and payroll records after the policy’s expiration. The main goal is to determine the exposure and compare it with the estimated direction upon which the initial premium was based.
The primary purpose of a workers’ comp audit is to calculate the actual premium due for the policy period. Since premiums are based on estimates made at the beginning of the policy term, the audit adjusts those estimates to reflect the actual payroll and operations during that term.
Steps to Get Through Your Workers Comp Audit
Navigating a workers comp insurance audit can seem daunting, but understanding the steps involved can help simplify the process.
Preparation is crucial for a successful audit. This involves gathering all necessary documents, such as payroll, employee, sales, and tax records. Classifying your employees correctly according to their job duties is also essential.
2: The Audit Process
During the audit, the auditor will meticulously examine your records to ensure the precision of the information provided at the beginning of the policy period. They will thoroughly assess factors such as the number of employees, job classifications, and payroll amounts.
3: Post-Audit Process
After the audit, you will receive an audit statement detailing any changes to your premium. You might owe an additional premium if your payroll was higher than estimated. Conversely, you may receive a refund if your payroll is lower than estimated.
Common Mistakes and How to Avoid Them
Errors made during a workers comp insurance audit can result in overpayment or underpayment of premiums, potentially impacting your business financially. Below are some frequent mistakes to watch out for and tips on avoiding them.
1: Misclassification of Employees
Incorrectly classifying employees can significantly affect your premium. Ensure you understand the classification codes and apply them correctly.
2: Inaccurate Payroll Records
Inaccurate or incomplete payroll records can cause discrepancies during the audit. Maintain accurate records to ensure you’re not overpaying or underpaying your premium.
3: Not Being Prepared
Lack of preparation can lead to unnecessary stress and potential mistakes during the audit. Stay organized and have all necessary documents ready for the auditor.
In Conclusion – How does a workers comp insurance audit work?
Understanding how a workers comp insurance audit works can help you navigate the process more confidently and efficiently. A successful audit is critical to preparation, accurate record-keeping, and correct employee classification.